Breach of Trustee Duties
When a trust is established, trustees are appointed to manage the trust on behalf of the beneficiaries. Trustees are often appointed by way of Deed or some other document which created the trust. Every trust must have at least one trustee.
The main duty of a trustee is one of a fiduciary nature, meaning a trustee is legally and morally bound to the beneficiaries of the trust. Specific duties can vary according to the terms of the trust, and may include the following:
- To observe the terms of the trust document.
- To act impartially between the beneficiaries.
- To provide clear and accurate accounts and produce information relating to the trust.
- Exercise reasonable skills and care and ensure the correct distribution of assets.
The duties imposed on the trustees therefore can be onerous, especially if the size of the trust is large and there are many beneficiaries. Trustees are also jointly and severally liable for breach of trust where the breach has led to a loss of the trust fund.
How, then, can a trustee be in breach of his/her duties?
- Distributes assets to someone not entitled to them under the trust document.
- Invests the trust fund contrary to that permitted by the trust document.
- Profits from his position as a trustee.
- Breaches the common law or statutory duty of care, for example, by exercising a power without exercising such skill and care as is reasonable in the circumstance.
Due to the scope of a trustee’s duty and the potential ramifications that can occur because of a breach, it is advisable to seek advice regarding your rights and obligations as a trustee and those contained in the trust document.
Are there any defences for Trustees?
If you are alleged to have breached your duties as trustee, there are some defences available:
- Exemption clauses: There may be clause in the trust document which provides protection for trustees but this cannot exclude the duty of honesty and good faith.
- Section 61 of the Trustee Act 1925: A court may find a trustee is not liable for a breach if he has “acted honestly and reasonably” and ought to be excused.
- Section 62 of the Trustee Act 1925: If a breach of trust occurred at the request in writing of a beneficiary, the court can use the beneficiary’s share to indemnify the trustee.
- Limitation: It is an established principle in law that claims are time barred after six years from the date on which the breach occurred. This is not an automatic defence and must be pleaded.
- Consent of the Beneficiaries: A breach may not occur if the claimant beneficiary consented or concurred the breach. However, there are conditions to this defence such as that beneficiary must be free from undue influence.